Non-performing Loans Research Articles

Market power and bank risks: insights from India and Bangladesh

PurposeThis study aims to investigate whether various types of risks faced by the publicly listed commercial banks of India and Bangladesh are driven by market power and provides comparative insights from both economies.Design/methodology/approachBy using the adjusted Lerner index to gauge bank market power and applying the generalised methods of moments (GMM) regression approach, the research delved into the relationship between bank market power and three distinct facets of risk across a sample of 26 publicly listed commercial banks in India and 22 listed banks in Bangladesh spanning from 2011 to 2022.FindingsThe results indicate that for Bangladesh, both “competition fragility” and “competition stability” viewpoints coexist simultaneously across all risk types, supporting a nonlinear relationship between market power and risk. However, in the Indian context, a nonlinear association exists only in the case of credit risk, while the relationship with insolvency risk is linear, substantiating the “competition fragility view”. Apart from market power and bank-specific variables, GDP growth rate has emerged as a prominent driver across all risk categories in both countries.Research limitations/implicationsThe filtration of banks is a limitation that might have influenced the outcomes. This study recommends that the Reserve Bank of India encourages further bank consolidation. Along the same line, Bangladesh Bank should closely oversee the growing competitive landscape. Furthermore, the regulators must monitor the elevated levels of non-performing loans to reduce credit risk so as to bolster the stability of their respective banking sectors.Originality/valueThis comparative study is the first attempt to analyse the market power and risk relationship and includes a novel bank-specific variable, i.e. technology, apart from other established variables.

Approaches to the Impact of Non-Performing Loans on the Romanian Economy

Approaches to the Impact of Non-Performing Loans on the Romanian Economy

On the Determinants of Loan Default in the Saudi Banking System

The main purpose of this paper is to examine the key determinants influencing the non-performing loans (NPLs) in the Saudi banking system. To do so, we consider a set of macroeconomic, banking, and external factors over the period 2010Q1-2023Q3. The contribution of this work to the literature includes providing fresh evidence following the COVID-19 pandemic, utilizing quarterly observations unlike preceding literature, and adopting time series econometric techniques to identify key elements influencing NPLs. A vector error correction model (VECM) is estimated to capture NPL dynamics over both the long-run and short-run. The empirical evidence reveals that NPLs are determined by a combination of macro, banking, and external factors. Specifically, macroeconomic and external variables appear to have a significant impact on NPLs, and their effects are in parallel with theoretical expectations. Likewise, the impact of return on equity on NPLs is significant as expected by theory; however, the impact of other banking factors is against expectations.

Does Interest Rate Impact Economic Growth? Empirical Insight from Nepal

Background: The relationship between interest rates, inflation, and non-performing loans on economic growth is debated in theoretical and empirical research. Hence, the study examines the effect of interest rate, inflation rate, and non-performing loans on the economic growth in Nepal. Methods: The paper incorporated quarterly data spanning nine years (2011-2019) and consisted of 972 observations. The study collected secondary data from the official websites of Nepal Rastra Bank and the Ministry of Finance, Nepal. The study used a panel cointegration test and random-effect models to examine the long-run relationship between predictor and response variables. Results: The impact of lending rate (LR) on economic growth is positive and statistically significant (β1 = 0.017, p < .01) in Nepal. Similarly, the coefficient of LNCPI (β2 = 0.687, p < .01) suggests that there is a positive relationship between the Consumer Price Index (CPI) and the Gross Domestic Product (GDP). The regression coefficient of CPI (β3 = -.001, p > .05) suggests that an increase in non-performing loans (NPL) led to a decrease in GDP. However, this relationship was not statistically significant for the Nepalese Economy. Conclusion: The study concludes that the interest and inflation rates positively affect Nepal's economic growth. The findings indicate that policymakers, such as Nepal Rastra Bank, should maintain interest rates at an appropriate level. Novelty: This study is novel because it thoroughly analyzes numerous observations over long periods to investigate the impacts of loan rates, inflation rates, and non-performing loans on economic growth in Nepal, improving its generalizability.

Institutional Quality, Efficiency, and Stability in The Islamic Banking Sector of Malaysia

This study examines the interplay among institutional quality, efficiency, and financial stability in the Malaysian Islamic banking sector with a special emphasis on the interaction between efficiency and institutional quality. The sample comprises 16 Islamic banks from 2012 to 2020. The indicators for financial stability are Z-score based on return on assets (ZROA) and non-performing loans (NPLs). The system generalized method of moments (GMM) is employed to overcome the potential endogeneity issue in our regression. The findings show that institutional quality (i.e. government effectiveness, regulatory quality, and rule of law) influences Islamic banking performance. Based on the interaction model, government effectiveness and regulatory quality have a negative and statistically significant impact on ZROA. Conversely, government effectiveness and regulatory quality positively and statistically influence financial stability, as measured by NPLs. As for the rule of law, financial stability (i.e., ZROA) can be achieved in a strict environment when Islamic banks are inefficient.

Investigating the Impact of Green Banking Disclosure, Profitability, Company Size, and Non-Performing Loans on Company Value

Investigating the Impact of Green Banking Disclosure, Profitability, Company Size, and Non-Performing Loans on Company Value

EFFECT OF NON-PERFORMING LOANS ON THE FINANCIAL PERFORMANCE OF NEPALESE COMMERCIAL BANKS

This research has been conducted to show the effects of non-performing loans on the financial performance of commercial banks in Nepal. Both the macroeconomic variables and bank-specific variables are used in the study. Descriptive and analytical research design has been used to analyze and interpret the results. Secondary data has been collected from the annual reports of banks for bank-specific variables and macro-economic variables are collected from the economic survey. Five-year data was collected from the twenty commercial banks from 2015/16 to 2019/20. Banks are selected using the convenient sampling technique. Data are interpreted and analyzed using inferential (Correlation and Multiple Regression) statistics. The study takes two dependent variables (ROA and ROE) and five independent variables (CAR, CRR, Size, GDP, and Inflation). The findings show that there are statistically positive and significant effects of size and inflation on ROA and similar effects of cash reserve ratio and inflation on ROE. The result also shows that CRR and CAR have a negative but statistically significant effect on ROA and ROE. Other independent variables GDP and CAR have nominal effects on the financial performance of commercial banks in Nepal. Key Words: Capital adequacy, Cash reserve, financial performance, ROA, ROE.

Excessive bank risk-taking in an infinite horizon economy

We develop a dynamic framework to study banks’ incentives to take excessive risk in an emerging economy, where bank default probability and excess bank risk-taking are modeled endogenously. We calibrate it for the 1998 Peruvian economy. We find that the infinite-period feature amplifies banks’ incentives to take excessive risk. When we simulate the sudden stop that hit Peru in 1998, the model accurately predicts the substantial short-term rise in the non-performing loans ratio through the rise of the bank default probability.

PENERAPAN PRINSIP PRUDENTIAL BANKING PADA PEMBIAYAAN KREDIT USAHA RAKYAT MIKRO: STUDI PADA BANK SYARIAH INDONESIA CABANG BANDA ACEH

Kredit Usaha Rakyat (KUR) is a credit facility to middle to lower class customers that issued by banking industries in Indonesia, which focusses on aspects of livestock, trade, and agriculture. PT Bank Syariah Indonesia, Banda Aceh is one of bank company which issues this product and always applies prudent banking principles, especially in financing. The application of the prudential principle is carried out starting from the beginning of the debtor applying for credit analysis of KUR financing until the financing is paid off. This type of research is a qualitative descriptive approach through case studies. The result finds that the application of prudential banking principles applied to the company can be seen from the various provisions set by Bank Indonesia. The provisions of the prudential principle are the Capital Adequacy Ratio (CAR), namely the maximum credit provision (Maximum Lending Limit), the allowance for productive asset liabilities, and the provisions that regulate banking itself. The company can be seen from non-performing loans, it seems that their non-performing loans originated from year to year are increasing even though they have implemented the prudential principle, but there are still non-performing loans.

Assessment of Non-Performing Loans on Deposit Money Banks’ Performance During the Digitalized Banking Policy in Nigeria

Assessment of Non-Performing Loans on Deposit Money Banks’ Performance During the Digitalized Banking Policy in Nigeria

Analisis Tingkat Risiko Kredit Pada PT. BPR Yaspis Dana Prima Tentena

This research was conducted at PT. BPR Yaspis Dana Prima Tentena. This study aims to determine the level of ktedit risk at PT. BPR Yaspis Dana Prima Tentena. This research was conducted using data collection techniques including observation, documentation and interview techniques. The analysis method used by the author is a quantitative method using Credit Riks Ratio analysis. Primary data sources with interviews and questions and answers, as well as secondary data through references and collectibility report data for 2017-20121 PT. BPR Yaspis Dana PrimaTentena is the source of data used by the author. Based on the results of the analysis, it was concluded that Non-Performing Loan (NPL) loans at PT. BPR Yaspis Dana Prima Tentena decreased from 2017-2020 and in 2021 increased by 5.0%, so this shows that PT BPR Yaspis Dana Prima Tentena's Non-Performing Loan is classified as moderate according to Bank Indonesia regulations.

Internal Determinant Of Firm’s Security Returns On Commercial Banks Listed On Nairobi Securities Exchange

The market for securities improves the exchange of shares of public firms. Companies utilize the essential market to float shares to the public through an initial public offer in return for financed capital. A firm’s performance concerning equities is a solid marker of how it is fairing financially and its contribution to the macroeconomy. The equity market records are a sign of the monetary solidness of the economy. Thus, the current study sought to establish the influence of market determinants on stock market returns among listed commercial banks at Nairobi Securities Exchange in Kenya. In Kenya, such risks as liquidity risks, non-performing loans (NPLs), and poor performance, among others, have been of significant concern for quite some time. Many studies have been carried out in Kenya concerning the stock market performance of the banking sector. While there may be several factors, such as favorable government policies, explaining these performances, there is a shortage of information on the justification of strategic bank factors influencing the financial performance of these banks. Hence, the research sought to address hypothesis around the influence of the determinants such as capital adequacy, asset quality, management efficiency and influence of liquidity on stock market returns among Commercial Banks listed in Nairobi Securities Exchange. The research adopted credit risk theory, liquidity risk theory transaction cost theory, capital structure theory and signaling hypothesis theory. The study also applied panel data analysis and survey design on 10-year primary and secondary data from from 2013 to 2022. The target population constituted 11 commercial banks listed on Nairobi Securities Exchange. The study used quantitative data sorted and analyzed using descriptive and inferential statistical techniques. The descriptive analysis results were in the form of mean, standard deviations, frequencies, and percentage forms. Tables, diagrams, and charts were adopted. From the study findings, asset quality and management efficiency ratios had a negative and significant association with stock market returns respectively. On the other hand, capital adequacy and liquidity had a positive and significant relationship with stock market returns respectively. Based on the study results, the study recommends that banks should balance asset quality and lending stringency due to its negative correlation with stock returns. Strengthening capital adequacy and maintaining optimal liquidity positively impact stock market returns. In addition, a focus on service quality and employee morale is recommended for indirect benefits on stock performance.

Nonperforming Loan Disposals Without Resolution

Using proprietary data on nonperforming loan (NPL) transactions in China, we document that banks conceal NPLs in disposal transactions that are supposed to resolve NPLs. In these transactions, banks provide financing and retain the credit risks and debt collection obligations. Transaction prices contradict underlying credit risks: Despite being delinquent for 4.5 years, the median NPL package is sold at face value with zero haircut. The majority of NPL packages are resold at a premium to banks’ non–government-owned borrowers, further supporting the concealment view. Banks under stricter regulation conceal NPLs more and engage in more illicit concealment. NPL-concealing banks increase zombie lending, suggesting that an ineffective resolution exacerbates credit misallocation. Recognizing the hidden NPLs implies the total NPLs in China is two to three times the reported amount. This paper was accepted by Victoria Ivashina, finance. Funding: B. Charoenwong acknowledges financial support from the Singapore Ministry of Education [AcRF Tier 1 Research Grant A-8000760-00-00]. T. Ruan acknowledges financial support from the National University of Singapore (NUS) [Start-Up Grant A-0003870-00-00]. B. Charoenwong and T. Ruan acknowledge financial support from the NUS Business School Financial Database [Grant N-311-000-251-001]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.02163 .

The role of bank and startup fintech P2P lending in supporting financial credit for Indonesian farmers

One of the challenges faced by farmers is securing capital for the development of their agricultural businesses. Banks and peer-to-peer (P2P) lending fintech startups employ various business models to assist farmers in obtaining the necessary capital. This study investigates the credit financing schemes available to farmers through banks and P2P lending fintech startups. The research, which utilized a qualitative approach, involved collecting both primary and secondary data. Primary data were gathered through comprehensive interviews with two academic experts in the agricultural business sector and five leaders of agri-tech startup companies. Secondary data included: (1) annual financial reports from BRI, Mandiri, and BNI; (2) statistical reports on P2P lending providers from the Financial Services Authority (OJK); and (3) models of financing schemes for farmers derived from a range of empirical sources. A descriptive analysis was subsequently conducted to explore the various financing schemes available to farmers through banks and P2P lending fintech startups, as well as to assess the performance of these financing programs via data on the rate of non-performing loans (NPLs). The findings indicate that the financing schemes implemented by banks predominantly focus on economic factors to facilitate loan repayment. In contrast, P2P lending fintech startup schemes emphasize both economic and social aspects, including enhancing farmers' knowledge in implementing Good Agricultural Practices (GAP) and improving financial literacy, aiming to ensure smooth loan repayments. Furthermore, the study observed an increase in the value of Non-Performing Loans (NPL) among both banks and P2P lending fintech startups during the Covid-19 pandemic.

Risk and reward: unraveling the link between credit risk, governance and financial performance in banking industry

Purpose This study aims to investigate the moderating role of corporate governance (CG) on the relationship between credit risk (CRs) and financial performance (FP) of banks listed in the Palestine Securities’ Exchange (PEX) and Amman Securities’ Exchange (ASE). Design/methodology/approach This study used a hypothesis-testing research design to collect data from the annual reports of 21 banks listed on (PEX) and (ASE). Secondary data, annual reports and disclosures were used between from 2009 to 2019. Descriptive and inferential statistics were used, along with correlation analysis to evaluate linear relationships between variables. Data was collected based on panel data, the VIF was used to test multicollinearity and binary logistic regression was used to develop the research model. Findings The regression results showed the association between CR and firm performance depends on the measurement of each factor applied. The results showed mixed results between loans to total assets (LTA) and nonperforming loans to total loans (NPLs) with FP. LTA has a significant and positive effect on TOBINSQ and return on equity (ROE), but an insignificant and positive effect on return on assets (ROA). On the other hand, NPLs have a significant and negative effect on ROA, whereas NPLs have a weak and positive effect on TOBINSQ. However, there is an insignificant and positive effect of NPLs on ROE. Moreover, the results demonstrated that CG moderated the relationship between CRs and FP of banks. The practical contribution of this paper, for bank policymakers and authorities, the study’s implications are noteworthy. Understanding the varied impacts of different CR measures on FP can help regulators and policymakers design more tailored and effective risk management frameworks for banks. Research limitations/implications This study had limitations that future research might be able to address. First, the small size of the sample used in the study included 21 banks listed on the PEX and ASE. Likewise, the ASE and PEX are considered developing stock exchanges, so the results of this study may differ from those of other stock exchanges. Second, only CRs were considered in this study when examining the association between the profitability of Palestinian banks and ASE. Other studies can be undertaken on other nonfinancial risks, such as operational risk, to measure the differences between them and examine their effects on the profitability of Palestinian and Jordanian banks. Other studies might be performed to compare CRs and its impact on profitability in Palestinian and Jordanian banks with those in other Western and Eastern banks. Furthermore, in addition to TOBINSQ, ROA and ROE, researchers can use other financial indicators to measure profitability. This will contribute to substantiating the present study’s findings. Originality/value Although several studies have examined the relationship between CRs and FP in developed and developing countries, the results have been mixed. However, this study is one of the few studies that examined the moderating role of CG in association with CRs and FP, especially on Palestinian and Jordanian contexts. Finally, the findings offer policymakers and practitioners of Palestinian and Jordanian contexts.

The Influence of the Banking Sector on Economic Growth and Commodity Prices: A Panel Data Analysis of Spain, France, and Romania

This study aims to investigate the impact of the banking sector on economic growth and commodity prices. Through panel data analysis, the research explores the relationship between the banking sector and economic growth in Spain, France, and Romania from 2000 to 2020. The findings reveal a positive correlation between the strength of the banking sector and economic growth across these nations, underscoring its pivotal role in fostering economic expansion and subsequently improving commodity prices. Additionally, this study evaluates various regulatory measures crucial ensuring the banking sector’s sustainability and preventing financial crises, including credit risk management, lending policies, liquidity constraints, and international financing and investment strategies. By analyzing the interplay between regulatory measures and banking sector performance, incorporating variables such as non-performing loans, household debt, liquid liabilities, government consumption expenditure, foreign investments, and trade openness, this research provides policymakers with valuable insights to formulate effective strategies for promoting economic stability and ensuring the sustainability and growth of the banking sector.

Factors influencing demand for, and supply of, agricultural credit: A study from Bangladesh

The provision of a wide range of financing choices enhances farmers' ability to respond to changing circumstances in their agricultural activities and maintain optimal levels of production. However, several household- and farm-level determinants impact the availability of, and demand for, agricultural credit in rural households. Therefore, the current study explores the determinants of demand for, and supply of, agricultural credit. To do so, data at the farm level were gathered using interviews with a randomly selected sample of 360 respondents in the Mymensingh region of Bangladesh. Additionally, 30 years' worth of secondary data were obtained from various sources to investigate the determinants of agricultural credit supply. Data were analyzed using binary logistics and multiple linear regression. Findings reveal that farmers’ demand for agricultural credit is positively influenced by farming experience and farm size. Factors that significanly discourage farmers from taking credit include (a) an increase in income-generating family members, (b) perceived high interest rates of credit, and (c) negative perceptions regarding the application procedure. Factors that increase agricultural credit supply are (a) an increase in credit supply targets and (b) increased severity of natural disasters. In addition, an increase in non-performing loans does not hinder agricultural credit supply as the Bangladeshi government has placed special emphasis on protecting farmers from crop failures and other adverse situations in order to achieve food self-sufficiency in the country.

Beyond the Crisis: Tracking SME Non-Performing Loan in Indonesia Before and After the COVID-19 Stimulus

This study evaluates the impact of two Indonesian government economic stimulus packages on the performance of Non-Performing Loans (NPLs) in the Small and Medium Enterprises (SME) financing sector. It compares the NPLs in conventional and rural banks with Non-Performing Financing (NPF) in Islamic commercial and rural banks, before and after the stimulus, during the COVID-19 crisis period. The two policies are in the form of interest/margin subsidies and credit/financing restructuring for debtors in the SMEs sector. The approach used is a quantitative approach with three analytical methods consisting of ANOVA, MANOVA and DiD (Difference in Difference). The secondary data in this study were sourced from official publications of government institutions such as the Financial Services Authority and the Ministry of Finance. The results showed that there were significant differences in the performance of NPL/F of Conventional banks, Islamic Commercial Banks, Conventional Rural banks, and Islamic Rural banks before and after the government's economic stimulus policy was determined.

PENGARUH RASIO KEUANGAN TERHADAP PERINGKAT OBLIGASI PERUSAHAAN PERBANKAN UMUM DI BEI

Each study aims to decide the effect of Cash Adequacy Ratio, Non-Performing Loan, Loan to Deposit Ratio, and growth on bond ratings in general banking companies listed on the Indonesia Stock Exchange in 2016-2020 period. Purposive sampling method and valid data obtained as many as 20 companies for sample selection. Logistic regression analysis with SPSS version 21 program and Windows released in 2020 is the data processing technique chosen in this study. The results of this study indicate that the Cash Adequacy Ratio and Loan to Deposit Ratio has significant effect, while Non-Performing Loans and growth have no effect on corporate bond ratings. The implication of this research are the need for processing the company's Cash Adequacy Ratio and Loan to Deposit Ratio properly to be able to increase its bond rating.

Pengaruh CAR, BOPO, ROA dan BI RATE terhadap NPL Bank

This research aims to evaluate the impact of Capital Adequacy Ratio (CAR), Operational Expenses on Operating Income (BOPO), Return on Assets (ROA), and BI Rate on Non-Performing Loans (NPL) of Banks in Indonesia from 2019 to 2021. Method used is panel regression analysis with data from the financial reports of 43 banks published by the Financial Services Authority (OJK). The sample includes banks that are listed on the Indonesian Stock Exchange and have complete data for that period. The research results show that CAR does not have a significant influence on bank NPL, indicating that the availability of bank capital does not significantly influence the level of bank non-performing loans. On the other hand, BOPO has an effect on bank NPLs, where high operational costs and low operating income tend to increase the bank's level of non-performing loans. ROA also does not have a significant effect on bank NPL, indicating that the rate of return on bank assets does not substantially influence the level of bank non-performing loans. However, the BI Rate has a significant influence on bank NPLs, indicating that Bank Indonesia's benchmark interest rate (BI Rate) has a significant impact on the level of bank non-performing loans. In conclusion, the research emphasizes the importance of managing operational efficiency and paying attention to changes in the BI Rate to control credit risk and maintain a healthy NPL level. Keywords: CAR, BOPO, BI RATE, NPL, ROA